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The importer's sword affirmed: the Federal Circuit's solution to the deemed liquidation dilemma

The U.S. Court of Appeals for the Federal Circuit has recently resolved an issue that has divided the Court of International Trade: Does an importer have a viable remedy when one of its entries is deemed liquidated at a rate of duty higher than the correct, final rate? Two recent CIT opinions, Koyo Corporation of U.S.A. v. United States, 403 F. Supp. 2d 1305 (2005), and Shinyei Corporation of America v. United States, Slip Op. 07-59 (2007), respond to this question with two separate answers. In each of these cases, the importer (Koyo and Shinyei, respectively) made entries of roller and ball bearings from Japan that were subject to an antidumping duty order. The antidumping duty deposit rates were high, between 48 and 74 percent ad valorem. Liquidation of these entries was suspended due to the administrative review process, and litigation in the CIT ensued as a result of that process. The litigation was a victory for the importers and resulted in a substantially lower antidumping duty rate than the deposit rates. The end of the litigation signaled that the suspension on liquidation of the importers' entries had been lifted. Pursuant to 19 U.S.C. § 1504(d), U.S. Customs and Border Protection had six months from the removal of the suspension to liquidate the entries at the lower final antidumping duty rate and issue appropriate refunds to the importers. Customs, however, did not liquidate either importer's entries within six months. Customs instead, in the words of the Koyo Court, "did nothing."

Koyo contacted Customs about a year after the resolution of the litigation and inquired as to why its entries had not yet been liquidated. Customs immediately asserted that the entries had been deemed liquidated, and then actively liquidated the entries at the deposit rate. Koyo timely protested these active liquidations pursuant to 19 U.S.C. § 1514, and Customs denied the protests on the basis that the entries were deemed liquidated. Koyo then appealed to the CIT. Customs argued to the CIT that the statutory language of section 1504(d) is clear, and that once section 1504(d)'s six month deadline passed, Koyo's entries were deemed liquidated and Customs' only option was to actively liquidate the entries at the rate imposed by section 1504(d): the antidumping deposit rate. The Koyo Court rejected Customs' interpretation of section 1504(d) and ordered Customs to reliquidate Koyo's entries at the final antidumping rate determined by the litigation. The Koyo Court stated that "when the literal words of a statute create an absurd result, such a literal interpretation must be rejected." The Koyo Court further stated that "the court cannot accept an interpretation of [section 1504(d)] which encourages Customs simply to forget or refuse to liquidate and to ignore a court victory favoring an importer…"

Shinyei's posture before the CIT was different than Koyo's. Shinyei, unlike Koyo, did not inquire of Customs as to why its entries remained unliquidated, but instead directly commenced an action in the CIT, asking the CIT to enforce the final administrative rate and order Customs to liquidate its entries accordingly. While the litigation was ongoing, Commerce issued new liquidation instructions to Customs that instructed Customs to liquidate at the deposit rate. Customs actively liquidated Shinyei's entries accordingly. Shinyei protested only one of these active liquidations, and Customs granted the protest in part, reliquidated the entry and issued Shinyei a refund. However, in the view of the CIT in the Shinyei opinion, whether or not Shinyei protested the active liquidations was irrelevant if the entries were already deemed liquidated. The Shinyei Court stated that the proper remedy for Shinyei was to seek relief prior to the deemed liquidation deadline, stating that "Shinyei could have sought mandamus to compel liquidation" prior to the deemed liquidation date. On this point, the Shinyei Court's statement seems to be contradictory to the opinion of the Koyo Court, which stated that mandamus was unavailable because "mandamus is available for clear violations of the law" and "Customs has not yet violated the law" prior to the deemed liquidation date. Despite this, the Shinyei Court held that Shinyei's entries were deemed liquidated and final, dismissed Shinyei's suit, and ordered Shinyei to pay back to Customs the refund it received as a result of its granted protest. The Shinyei Court's holding thus implied that an importer has no right of protest when Customs actively liquidates an entry that has been deemed liquidated.

While the CIT's opinion in Shinyei currently remains on appeal at the Federal Circuit, the Federal Circuit issued its opinion in the Koyo appeal on July 30, 2007. The Federal Circuit affirmed the Koyo Court's opinion, although its legal reasoning differed significantly from that of the Koyo Court. The Federal Circuit framed two questions at issue in Koyo: (1) Can an importer protest a deemed liquidation? and (2) If the protest is proper, what duty rate applies? The Federal Circuit determined that the operation of section 1504(d) resulted in the deemed liquidation of Koyo's entries, and Customs thus had no option but to actively liquidate the entries at the antidumping deposit rate. The Federal Circuit stated that when entries become deemed liquidated, "Customs cannot (actively) liquidate the entries at any other rate than… the rate of duty… asserted at the time of entry…"

Rather than relying on the principle of absurdity as the Koyo Court had done, however, the Federal Circuit found that Koyo had an administrative remedy under the protest procedures of section 1514 and its associated regulations. The Federal Circuit found that "there is no language in [section 1514] that bars an importer from formally protesting… the liquidation of entries that result by operation of [section 1504(d)]." The Federal Circuit also stated that the legislative history of section 1504(d) indicated that "Congress did not intend to remove the importer's protest remedy… if Customs delays liquidating entries." Moreover, the Federal Circuit found that the regulation in 19 C.F.R. § 159.9, promulgated by Customs itself, explicitly provided for protests of deemed liquidations. The Federal Circuit thus dismissed Customs' argument that a deemed liquidation is final and cannot be protested, stating that "in order to prevent Customs from indefinitely retaining the excess duties deposited by importers at entry, a deemed liquidation must be protestable on the merits under [section 1514]."

The Federal Circuit thus held that Koyo's protests were timely because they were filed within 90 days of the bulletin notices of the deemed liquidations (i.e. the active liquidations by Customs of Koyo's entries), pursuant to section 1514. (Section 1514 has since been amended to allow for a 180 day protest period for entries made on or after December 18, 2004.) The Federal Circuit also recognized that Customs had conceded that an importer could protest a deemed liquidation either (1) within 90 days of the deemed liquidation date itself, or (2) within 90 days of the date on which Customs actively liquidates the entry that has been deemed liquidated. The Federal Circuit thus implies that an importer has two bites at the remedy apple, once at the time of an unfavorable deemed liquidation, and again at the time of the associated unfavorable active liquidation.

The Federal Circuit further held that when an importer timely filed protests of deemed liquidations, section 1504(d) "is unnecessary in determining the proper rate of duty that Customs should apply to entries deemed liquidated." The proper rate to apply when the importer validly protests is the rate set by Commerce during the administrative review process, or the rate determined by any judicial review of that process. Importantly, the Federal Circuit stated that "if Customs' interpretation of [section 1504(d)] were to stand, then it would render virtually meaningless the entire antidumping duty administrative and judicial determination and review process as provided in the tariff statutes and regulations."

In addition to its holding that Koyo was entitled to reliquidation of its entries, the Federal Circuit provides a roadmap for both Customs and importers who find themselves in the same situation as Koyo. Under section 1504(d), Customs has no choice but to actively liquidate an entry that is deemed liquidated at the deposit rate. However, once Customs has actively liquidated the entry in this manner, the importer must timely protest the active liquidation. In addition, the importer has the ability to protest the actual deemed liquidation itself, within the time frame established by section 1514 from the deemed liquidation date. If the importer fails to timely protest, "then the deemed liquidation stands and is final against the importer."

Under the Federal Circuit's roadmap, it seems odd that Customs is forced to actively liquidate an entry that has been deemed liquidated at the deposit rate when Customs knows that (1) the deposit rate is not the proper rate to apply, and (2) it will have to grant any protest timely filed by the importer after the active liquidation, and issue a refund anyway. It would seem to be in both Customs' and the importer's interest to allow Customs to actively liquidate the deemed liquidated entry at the correct rate initially, rather than wasting both Customs' and the importer's time and money in going through the motions of liquidation, protest and reliquidation. The Koyo Court's absurdity holding is more appropriately positioned to allow Customs this option, since it does not depend on the time restrictions inherent in the Federal Circuit's interpretation of the protest remedy contained in section 1514 and its associated regulations. However, the Federal Circuit explicitly rejected the Koyo Court's absurdity reasoning, and substituted in its stead the liquidation, protest and reliquidation scheme described above. Either line of reasoning is a victory for the importer, but the Federal Circuit's scheme has, from a procedural perspective, more moving parts and thus more opportunity for either Customs or the importer to blunder.

In addition, it is not entirely clear how the holding in Koyo will affect the appeal in Shinyei currently pending before the Federal Circuit, due to the fact that Shinyei's procedural posture is different than Koyo's. Unlike Koyo, Shinyei did not timely protest the majority of Customs' active liquidations, but instead commenced an action in the CIT prior to those liquidations. Shinyei thus has not followed the Federal Circuit's roadmap. However, if Shinyei is denied refunds owed to it due to its decision to seek relief from the CIT rather than from Customs through a protest, the antidumping duty administrative and judicial determination and review process would arguably be, in the words of the Federal Circuit, "render[ed] virtually meaningless." Under the Koyo Court's absurdity reasoning, it would seem that Shinyei would be entitled to a complete refund. Under the Federal Circuit's reasoning, however, Shinyei may be almost entirely out of luck.

Regardless of the outcome in the Shinyei case, however, every importer should take care to timely protest any unfavorable deemed liquidation, both after the deemed liquidation date itself, and then again if and when Customs actively liquidates the entry at the deposit rate. Under the Federal Circuit's decision in Koyo, this should be sufficient to preserve the importer's ability to receive the refund rightfully owed to it by Customs.

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